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Financial Analysis of American Superconductor

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Financial Analysis of American Superconductor - February 18th, 2011

AMSC (American Superconductor Corporation - NASDAQ: AMSC) serves the electric utility, industrial and wind power markets with a host of energy technologies based on proprietary high temperature superconductor (HTS) wires and power electronic systems. [1]

Business and Financials

They make a power controller and electrical components that are commodities in the wind power business. They are low margin items in a highly competitive industry, and among the only components in wind turbines not facing significant logistics and supply constraints. So any order for electrical components from AMSC should be matched with orders for essential components necessary to complete wind turbine projects.

American Superconductor had losses (negative Net Income) of over $19 million in 2004/05, $30 million in 2005/06 and $34 million in 2006/07 (fiscal year ending March) [2]. The company has over $60 million in current assets as of March 2008 [3] and in 2007 acquired two companies, at least one of which is profitable. The stock is volatile, Yahoo! Finance reports a beta of 2.55 relative to the S&P 500 (a beta of 1.0 implies volatility equal to the S&P 500).[4] Put and Call options are traded on the stock. [5]

Contents
1 Business and Financials
2 ACQUISITIONS
3 Trends and Forces
3.1 Restructuring
4 References
The company reports its results in two reportable business segments: AMSC Superconductors and AMSC Power Systems. AMSC Power Systems supplies power electronic systems used in wind turbines; produces products to increase electrical grid capacity and reliability and to regulate wind farm voltage for the electrical grid; and through its AMSC Power Systems Windtec subsidiary, licenses proprietary wind energy system designs to manufacturers of such systems and provides consulting services to the wind [power] industry.

AMSC Superconductors focuses on manufacturing of HTS wire and coils; the design and development of HTS products, such as power cables, fault current limiters and motors; and the management of large scale HTS projects, such as HTS power cable system design, manufacturing and installation. [6] </blockquote>

For the nine months ended December 31, 2007 AMSC Power Systems had $62.5 million in revenue versus AMSC Superconductors revenue of only $11.5 million for a nine month total revenue of $74 million. Moreover AMSC Power Systems was profitable with $4.3 million dollars in profit, while AMSC Superconductors was unprofitable with as loss of over $17.4 million, in addition there was "unallocated corporate overhead" which reduced aggregate profit by another $8.9 million for a total loss of over $22 million for the nine months ending December 31, 2007. [7]

ACQUISITIONS

American Superconductor had two acquisitions in 2007.

"On January 5, 2007 the company acquired Windtec Consulting GMBH a company incorporated according to the laws of Austria (Windtec)." [8]
Windtec had been a small customer of AMSC since 2005. Admittedly, Windtec was an engineering design firm, not a manufacturer of wind systems.

On the 8-K filed 3/27/2007, we get a glimpse into the real Windtec. Founded in 1995, this is what the company looked like after 11 years in operation (all numbers in Euros)… NOT thousands either.

All figures in Euros
Cash: 345,000
Inventory: 196,000
Machinery and Equipment: 1,100,000
Accounts Receivables: 2,000,000
Accounts Payable: 1,700,000
Short Term Borrowings: 335,000
12-month R&D: 1,500,000
Amount due to AMSC: 292,000
So basically, AMSC took a customer who owed them almost 80% of all their cash and saved them by acquisition


"On April 27, 2007 the company acquired Power Quality Systems, Inc (PQS) for $4.5 million as described below. Located in Pennsylvania PQS offers reactive compensation products known as Static VAR Compensators or SVCs based on proprietary thyristor switch technology. These products enhance reliability of power transmission and distribution grids and improve the quality of power for manufacturing operations. PQS was integrated into AMSC Power Systems"
* * *
As a result of this transaction, PQS is a wholly-owned subsidiary of the Company.[9]

Trends and Forces

Restructuring
"On March 26, 2007, our Board of Directors approved a restructuring plan (the “Fiscal 2006 Plan”) to reduce operating costs and to transition our high temperature superconductor products to the manufacturing stage by consolidating AMSC Wires, SuperMachines and Power Electronic Systems business segments into two operating segments: AMSC Superconductors and AMSC Power Systems. We consolidated our manufacturing operations by closing one of our two Westborough, Massachusetts facilities, moving operations from that facility into the Devens, Massachusetts plant, and reducing headcount by 37 employees." AMSC 10Q p. 23
* * *

"On October 25, 2007, our Board of Directors approved a restructuring plan (the “Fiscal 2007 Plan”) to reduce operating costs through the closure our last remaining facility in Westborough, Massachusetts and the consolidation of operations there, including our corporate headquarters, into our Devens, Massachusetts facility. No headcount reductions were associated with this plan." AMSC 10Q p. 23
* * *

"On July 25, 2007 we completed a public offering of 4.7 million shares of our common stock at $21.25 per share. Net Proceeds from the offering (after deducting underwriting discounts and commissions, but before deducting offering expenses) were $94.3 million."
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